Eatertainment chain will use deal to strengthen its balance sheet.
Dave & Buster’s announced a $100 million agreement with Jefferies on Monday, but the company also indicated that bankruptcy may be a possibility if its financial situation doesn't improve.
As part of the transaction, Jefferies agreed to purchase $100 million of the brand’s common stock, which will be reoffered at variable prices. Jefferies has the option to purchase up to an additional $15 million worth of shares in the next 30 days.
“The Company currently intends to use the net proceeds from this offering primarily to strengthen its balance sheet, principally as necessitated by the effects of the COVID-19 outbreak on its business, which could include use for general corporate purposes and/or repayment of outstanding debt,” Dave & Buster’s said in a filing.
In a separate filing, Dave & Buster's said it may not be able to avoid defaulting under its amended credit agreement. The eatertainment chain said it will depend on when "stores reopen and the level of customer re-engagement when they do reopen, as well as our ability to obtain further relief from our lenders."
"The failure to align our covenants with our levels of revenues, costs and debt outstanding could trigger the acceleration of our debt, foreclosure against collateral securing our debt and possibly a filing of a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in order to implement a restructuring plan," the company said in a filing.
The company also said in the filing it has "sufficient cash resources" that should last through fiscal 2020, according to its model. That assumes the company is able to maintain extended vendor payment terms, continue deferred rent, and that it receives $10 million in tax relief under the CARES Act.
The model does not assume funds from the Payroll Protection Program since the company decided to withdraw its application for a loan.
"Our objective is to raise and conserve a sufficient amount of cash to strengthen our liquidity position and to best position ourselves to enable operations, as stores reopen, to return to an acceptable level of profitability and to enable us to transition to a long-term capital structure consistent with our cash flows," the chain said.
Despite the modeling, Dave & Buster's said it's "unable to predict whether the actions we are taking in response to COVID-19 will be sufficient to ensure we have sufficient liquidity."
The company did not pay rent in April and said it was working with landlords and vendors to find alternative payment options. Dave & Buster's said it's unable to predict the outcome of discussions and the extent to which it can reduce or defer rent and extend vendor payment terms.
With rent being delayed, the brand said landlords may terminate leases or take other actions that restrict its ability to reopen in a timely manner.
On April 30, one store reopened with a limited offering and limited hours, and the brand expects others to reopen in the coming weeks and months. At reopened stores, all employees are required to wear gloves and have their temperature checked before working. One worker's sole responsibility is to clean the store at all times. In addition, condiments and signage will be removed from tables and replaced with a disposable menu, customers will be encouraged to wear gloves while playing games (gloves provided by Dave & Buster's), and games will be spaced to adhere to social distancing guidelines.
The eatertainment chain said in April that it had an agreement with Jefferies to sell up to $75 million in shares as part of an “at-the-market” offering program. Prior to that decision, there were reports that Dave & Buster’s was seeking a stake sale, which could result in a buyout firm grabbing a significant investment in the company.
The brand closed all 137 of its locations in the U.S., Canada, and Puerto Rico by March 20. As a result, 15,000 hourly employees were furloughed and management and corporate staff were reduced by almost 90 percent. The senior leadership team saw its salary cut by 50 percent and the board forewent its compensation for the rest of the year.
Dave & Buster’s said that at the end of April, it had $159 million in cash on hand and that it was burning roughly $3.2 million per week. It reduced capital expenditures for store remodeling, IT upgrades, game upgrades and store maintenance, eliminated a planned corporate office relocation.
The company’s stock has fallen 75 percent in the past three months. In mid-March, stock fell below $5 per share.
In the chain’s Q4, which ended at the beginning of February, comp sales dropped 4.7 percent and walk-in sales declined 5.5 percent. For 2019 overall, comps dipped 2.6 percent and walk-in sales decreased 3 percent.